Advertising cash-on-cash

[Marc Freislinger]

As I understand it, cash-on-cash return is the difference between your annual return and your total investment. I often see properties advertised as 15% - 25% cash on cash return. How can you determine this number without knowing what sort of down payment the investor will use? Or, since you're always looking for a cash buyer, wouldn't the actual return be extremely low?

Help me understand.

I'm looking at a deal with the following details:

Duplex: 3/1.5 and 3/1.5
Asking: $16,900
Rehab: $15,000
Rents: $1,200

Using the 50% rule, I get a cash flow of $193/unit. Which, to me, seems to be worth looking into, but if I paid cash for the property and the rehab, my total investment is $31,900.

So, $1,200 / $31,900 = 4% cash on cash return. Doesn't sound so appealing. But, let's say I assume the investor can finance 80% (including rehab), leaving a down payment of $6,380. That makes the cash-on-cash return 19%. Sounds more appealing.

So, do I just make up whatever numbers I want? Or what is the standard way of doing this? I apologize if I'm missing something dumb.